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Potential New Look float unlikely to reach £2bn valuation

New Look could float on the London Stock Exchange before May’s general election but would probably fall short of its “ambitious” £2bn target, according to analysts.

The retailer’s private-equity investors Apax Partners and Permira are understood to be looking to make an IPO once again, having recruited investment banks JP Morgan and Goldman Sachs to identify potential investors. This follows an aborted attempt in 2010, when interested parties were put off by the retailer’s debts.

“The market conditions are quite good for IPOs at the moment. What has changed significantly is that a year ago it was very much a seller’s market with some punchy valuations but more recently there is more focus on pricing,” said John Stevenson, equity retail analyst at broker Peel Hunt.

“There is an appetite for apparel retailers but they would need to have a very compelling growth story or offer real value, such as a significant discount compared to others on the market, like Next for example. New Look is relatively mature and its international growth would be the focus, rather than the UK.”

Apax and Permira bought a majority stake in New Look for £800m in 2004, and founder Tom Singh still owns a minority stake. The retailer’s chief executive Anders Kristiansen hinted earlier this month that the company is “strong enough” to make another attempt at a float, despite a 1.7% drop in sales for the three months to December 27, which it blamed on the mild autumn.

Its turnaround has been gathering pace, with group sales up 3% to £1.53bn for the year to March 29, while underlying operating profits rose 11% to £128.5m.

Retail consultant Richard Hyman said: “New Look has re-engineered its model by raising ticket prices but adding value and improving the quality to justify the prices. It has also edited its ranges significantly so there are fewer options, which all makes the model more viable and defendable from below and above.”

But independent retail analyst Nick Bubb said: “They [Apax and Permira] have had it for 11 years, which is way beyond what they would have expected, and they are obviously desperate to sell but the problem is that the City tends to be very cynical. I think it is too early still.”

A retail business adviser at a leading professional services firm said New Look could successfully float but thought pricing could be dampened by the political uncertainty in the UK relating to the election and the geopolitical conditions in some of its territories, as well as whether New Look is perceived as a brand in the same way as H&M and Zara overseas.

New Look has previously cited menswear and international expansion as its focus for growth, with up to 50 stores due to open in China in the next financial year from April, as well as three more in Poland and two in France over the next few months.

“It is working on a much lower operating margin than many of its competitors so the extra funds a float could bring would help it boost its expansion. However, although New Look’s performance has been improving a £2bn valuation seems ambitious,” added Maureen Hinton, group research director for global retail at retail analysis firm Conlumino.

New Look, Apax and Permira declined to comment. JP Morgan and Goldman Sachs have not responded to Drapers’ request for comment.


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